Question

Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. Production was 20 units per year in 2015–2017. Sales were 20 units in 2015, 16 units in 2016, and 24 units in 2017. Income under absorption costing for 2017 is
A) $4,800.

B) $8,400.

C) $9,600.

D) $13,200.

Answer 1

Answer:

B) $8,400

Explanation:

Absorption costing consider all the cost incurred in production either variable or fixed as production cost.

As we know variable cost vary with the change in the sale but the fixed costs remains constant whatever the level of sale is.

As per given data

Selling price = $6,600

Variable manufacturing cost = $3,600

Manufacturing Fixed Cost = $18,000

Total cost per unit = $3,600 + $18,000/20 = $4,500

Sales = Selling price x Numbers of units sold = $6,600 x 16 = $105,600

Cost of goods sold = Units sold x Cost per unit = 16 units x $4,500 = $72,000

Gross income = Sales - Cost of Goods sold = $105,600 - $72,000 = $33,600

Selling and Admin Cost = Variable cost + Fixed = (16 x $75) + $24,000 = $25,200

Net Income = Gross Income - Selling and Admin cost = $33,600 - $25,200 = $8,400